Hungarian daily Magyar Nemzet recently published an article detailing how Hungary fares in the current crisis in terms of the economy. The article took a close look at different key facets of the Hungarian economy. Below is a detailed summary of the Magyar Nemzet piece.

Deficit

The current state of the Hungarian economy is largely influenced by the war in our neighbouring country, the terrible impact of EU sanctions on the EU economy, and the global energy crisis. In addition, the most recent wave of the COVID-19 pandemic has just ended, also leaving its mark on the economy. It is undoubtedly noteworthy that the Hungarian budget deficit is declining under such circumstances. The pandemic is significant in this context because, in the effort to combat the epidemic’s harmful impacts, the deficit grew, peaking at 7.1 per cent in 2021 before steadily declining thereafter. Compared to the 4.9 per cent deficit from the previous year, this year’s rate might be as low as 3.9 per cent.

The government is anticipated to spend about 3.4 billion HUF on families, nearly 1.4 billion HUF on national defence, nearly 2.8 billion HUF on education, and about the same amount on healthcare in 2023.

Public Debt

Similarly to the deficit, public debt is also declining: it was 76.8 per cent of the annual GDP in 2021, dropped to 73.5 per cent last year, and may drop to below 70 per cent this year. To compare: Hungary’s public debt was 83.6 per cent of the country’s GDP in the second quarter of 2010, which was the final quarter of the Socialist Gyurcsány–Bajnai administration’s tenure.

It is only if we consider the whole of the European Union can we can properly appreciate the significance of Hungary’s public debt rate. The average rate in the EU was 86.9 per cent last year, while the Eurozone’s average was even higher, at 94.3 per cent.

If we look at the individual countries, we can see that the level of indebtedness in many EU member states is practically uncontrollable. Greece’s public debt to GDP ratio last year was 174 per cent, Italy’s was 146.5 per cent, Spain’s 114.8 per cent, France’s 112.2 per cent, Portugal’s stood at 115.2 per cent, while that of Belgium was 105.1 per cent.

Energy Prices and Trade Balance

The Hungarian international trade balance provides ample evidence for the significance of the fluctuation of energy prices. Without the rise in energy costs, there would be a surplus in both the budget and the international trade balance, instead of the current deficits. The situation is particularly gloomy because the EU’s sanctions policy is the primary cause of the increase in energy prices.

The estimates indicate that Hungarian energy imports may increase from 4.4 per cent of GDP in 2021 to 10 per cent by the end of 2022, costing the country €10 billion more than they did before to the war. To be more precise, we may pay €16.5 billion for energy instead of €6.8 billion. Without this, the budget and our foreign trade product balance might be in surplus, and instead of the anticipated 5 per cent deficit, last year’s balance would have concluded with a surplus of 1.2 per cent relative to the GDP. Additionally, in 2023, the budget may show a surplus of 0.1 per cent rather than the estimated deficit of 3.9 per cent.

This also implies that there is an opportunity for manoeuvring if the energy bill is reduced. As was previously noted, €16.5 billion were spent on energy last year; this year, that figure may drop down to €12 billion, a reduction of 25%.

Reserves

It is of paramount importance that the government ensures market trust in the Hungarian economy, Magyar Nemzet highlighted, noting that the Socialist governments failed to do that.

The Government Debt Management Agency secured $4.25 billion (over 1.6 billion HUF) to finance the budget. The foreign currency bonds issued were three times oversubscribed. Foreign exchange reserves may have grown to some €42 billion by the start of January.

The significance of this sum is best illustrated by the fact that Hungary’s foreign exchange reserves have never been this high. The amount is unfathomably large. The reserves are higher now than they were at the end of 2008, when the country was compelled to borrow €12.3 billion from the IMF and €6.5 billion from the EU as a result of improper crisis management of the Socialist governments.